China Set to Bail Out Iraq with Multibillion-Dollar Oil Deal - Bloomberg
Iraq is poised to sign a multibillion-dollar contract with China ZhenHua Oil Co., a bailout from Beijing for the cash-strapped government which will receive money upfront in exchange for long-term oil supplies.
The deal is the latest example of China, via state-controlled trading companies and banks, lending to struggling oil producers such as Angola, Venezuela and Ecuador, with repayment in the form of oil barrels rather than cash. The crash in oil demand and prices has hammered Iraq’s budget, and the government has been struggling to pay salaries.
The Iraqi agency in charge of petroleum exports, SOMO, picked ZhenHua, according to people familiar with the matter. Iraq’s cabinet must still approve the deal, according to one of the people. Cabinet spokesman Hassan Nadhim said on Tuesday the offers were being studied and would go to the prime minister for approval.
Under the terms of a letter SOMO sent to oil traders last month, the winning bidder will buy 4 million barrels a month, or about 130,000 a day. They will pay upfront for one year of supply, which at current prices would bring in more than $2 billion, according to Bloomberg calculations. The deal runs for five years in total -- but the upfront payment is only for one year.
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